Primark margins improved on better managed stock

Primark margins improved on better managed stock

Value fashion retailer Primark has seen sales pick up following weak Christmas trading, with profit margins also improved in the first six months of its new fiscal year thanks to fewer promotions and better managed stock.

In a trading update for the six months ended 27 February, Primark said it expects sales to be 7.5% ahead of last year on a constant currency basis, driven by increased selling space, and 4% ahead at actual exchange rates.

The forecast is an improvement on Christmas trading, which saw sales hit by unseasonably warm weather across northern Europe. Like-for-like sales have since picked up, the retailer said, and are expected to be level with last year in the first half. 

In particular, France has remained "buoyant", with strong like-for-like sales expected in the period, despite "very high sales densities" in their first year of trading. 

Primark has been busy expanding internationally and entered the US in September last year with openings in Boston and Pennsylvania. The retailer said early trading has been "encouraging", and six more openings are planned in the country this year.

Operating profit margin in the first six months of the year has also been better than expected, Primark said, with much of the impact of the stronger dollar being mitigated by a good buying performance and a lower level of markdowns arising from a better managed stock position.

The retailer has been investing in its warehouse infrastructure and last year added capacity in Spain and Germany, and opened a new warehouse on the western border of the Czech Republic. This summer, Primark plans to move distribution from its Magna Park centre in the UK to a larger warehouse in Northamptonshire. A new facility in Roosendaal in the Netherlands will also open later in the year. 

Kate Ormrod, senior analyst at Verdict Retail, said that despite a challenging first-half, Primark's appeal remains "resilient", with its proposition evidently welcomed in new markets, and its trend-led fashion ranges and regular newness ensuring it retains its competitive edge in the UK. 

She added: "Primark maintains a measured approach to expansion; and while further European market entry is unlikely in the short term given the focus on Italy, Primark must not lose sight of existing domestic operations, with investment much needed to bring its UK store network up to a consistent stands in terms of design and environment."